Solution Manual for College Accounting 12th Edition by Jeffrey Slater 2 Debits and Credits: Analyzing and Recording Business Transactions Chapter 2: Debits and Credits: Analyzing and Recording Business Transactions ANSWERS TO DISCUSSION QUESTIONS AND CRITICAL THINKING/ETHICAL CASE 1. A ledger is a group of accounts that records in monetary value data from business transactions. 2. Because that is always the debit side. It is an arbitrary rule. 3. False. Accounts with one entry will not need footings. 4. The end product of the accounting process is preparing financial statements. 5. The transaction analysis chart is a teaching device that is not used in the regular accounting process. 6. Accounts affected, category, rules, update of T accounts. 7. The analysis of transactions results in the total of debits being equaled to the total of credits. A double-entry system provides a system of checks and balances. 8. False. Informal report; does not have the same status as financial statements. 9. The financial statements are prepared from the ending balances of the accounts (debit or credit) in the ledger. These ending balances are then used on financial statements. The inside columns on financial statements are for subtotaling. 10. It is easier to prepare the reports from the trial balance, because a list of all accounts and their balances is provided. The columns for revenue, expenses, etc., on the expanded accounting equation do not list specific titles and their balances. 11. The question in this case is whether Audrey should be allowed to put fictitious figures into the trial balance. Although Audrey has good intentions in this case, I would not support this type of behavior. Her behavior is extremely unprofessional and goes against all accounting standards. Instead of putting in fictitious figures, Audrey should stay late and correct the trial balance (or maybe have an assistant help her so she could catch the plane). SM-21
CHAPTER 2 SOLUTIONS TO CLASSROOM DEMONSTRATION EXERCISES SET A 1. Cash $13,900 Debit Balance Ken Dalton, Capital $24,000 Credit Balance 2. A. Liability Cr. Dr. Cr. B. Revenue Cr. Dr. Cr. C. Asset Dr. Cr. Dr. D. Capital Cr. Dr. Cr. E. Withdrawal Dr. Cr. Dr. F. Asset Dr. Cr. Dr. G. Expense Dr. Cr. Dr. 3. 500 Cash Cash Asset Dr. 4,500 Acc. Rec. Accounts Receivable Asset Dr. Legal Fees Earned 5,000 Legal Fees Earned Revenue Cr. SM-22
4. Cash Accounts Receivable Office Equipment Accounts Payable B. O Mally, Capital B. O Mally, Withdrawals Hair Salon Fees Earned Advertising Expense Salary Expense Selling Expense 5. A. BS B. BS C. BS D. BS E. OE F. OE G. IS H. IS I. IS J. IS K. IS SM-23
SOLUTIONS TO EXERCISES Set A 2A-1. Balance Sheet Accounts Assets 111 Cash 112 Accounts Receivable 121 Panasonic HD Television Liabilities 211 Accounts Payable Owner's Equity 311 L. Janas, Capital 312 L. Janas, Withdrawals Income Statement Accounts Revenue 411 Legal Fees Earned Expenses 511 Salary Expense 512 Repair Expense 513 Advertising Expense 2A-2. 1. Accounts Affected 2. Category 3. 4. Rules Computer Equipment Asset Dr. Cash Asset Cr. 5. T-Account Update Computer Equipment 26,000 Cash 9,000 Accounts Payable 17,000 Accounts Payable Liability Cr. SM-24
2A-3. ACCOUNT CATEGORY FINANCIAL STATEMENT Computer Supplies Asset Dr. Cr. Balance Sheet Legal Fees Earned Revenue Cr. Dr. Income Statement P. Roy, Withdrawals Withdrawal Dr. Cr. Statement of Owner's Equity Accounts Payable Liability Cr. Dr. Balance Sheet Salaries Expense Expense Dr. Cr. Income Statement Auto Asset Dr. Cr. Balance Sheet 2A-4. Dr. Cr. A. 8 1 B. 6 1 C. 9 4 D. 1 7 E. 10 1 F. 3 5 G. 2 7 H. 1 2 I. 3 4 SM-25
2A-5. (1) HILL'S CLEANERS INCOME STATEMENT FOR MONTH ENDED MAY 31, 201X Revenue: Cleaning Fees $ 4 1 5 Operating Expenses: Salaries Expense $ 1 0 0 Utilities Expense 1 7 1 Total Operating Expenses 2 7 1 Net Income $ 1 4 4 (2) HILL'S CLEANERS STATEMENT OF OWNER'S EQUITY FOR MONTH ENDED MAY 31, 201X J. Hill, Capital, May 1, 201X $ 1 0 8 6 Net Income for May $ 1 4 4 Less: Withdrawals for May (2 3 0) Decrease in Capital (8 6) J. Hill, Capital, July 31, 201X $ 1 0 0 0 (3) HILL'S CLEANERS BALANCE SHEET MAY 31, 201X ASSETS LIABILITIES AND OWNER'S EQUITY Cash $ 8 0 0 Liabilities Equipment 7 0 0 Accounts Payable $ 5 0 0 Owner's Equity J. Hill, Capital 1 0 0 0 Total Liabilities and Total Assets $1 5 0 0 Owner's Equity $1 5 0 0 SM-26
SOLUTIONS TO EXERCISES Set B 2B-1. Balance Sheet Accounts Assets 111 Cash 112 Accounts Receivable 121 Copy Machine Liabilities 211 Accounts Payable Owner's Equity 311 L. Jones, Capital 312 L. Jones, Withdrawals Income Statement Accounts Revenue 411 Legal Fees Earned Expenses 511 Salary Expense 512 Rent Expense 513 Advertising Expense 2B-2. 1. Accounts Affected 2. Category 3. 4. Rules Computer Equipment Asset Dr. Cash Asset Cr. 5. T-Account Update Computer Equipment 11,000 Cash 10,000 Accounts Payable 1,000 Accounts Payable Liability Cr. SM-27
2B-3. ACCOUNT CATEGORY FINANCIAL STATEMENT Office Supplies Asset Dr. Cr. Balance Sheet Rental Fees Earned Revenue Cr. Dr. Income Statement A. Troy, Withdrawals Withdrawal Dr. Cr. Statement of Owner's Equity Accounts Payable Liability Cr. Dr. Balance Sheet Wage Expense Expense Dr. Cr. Income Statement Computer Asset Dr. Cr. Balance Sheet 2B-4. Dr. Cr. A. 8 1 B. 6 1 C. 9 4 D. 1 7 E. 10 1 F. 3 5 G. 2 7 H. 1 2 I. 3 4 SM-28
2B-5. (1) HUCK'S CLEANERS INCOME STATEMENT FOR MONTH ENDED MAY 31, 201X Revenue: Cleaning Fees $ 4 1 5 Operating Expenses: Salaries Expense $ 1 0 0 Utilities Expense 1 7 1 Total Operating Expenses 2 7 1 Net Income $ 1 4 4 (2) HUCK'S CLEANERS STATEMENT OF OWNER'S EQUITY FOR MONTH ENDED MAY 31, 201X J. Huck, Capital, May 1, 201X $ 1 0 8 6 Net Income for May $ 1 4 4 Less: Withdrawals for May (2 3 0) Decrease in Capital (8 6) J. Huck, Capital, May 31, 201X $ 1 0 0 0 (3) HUCK'S CLEANERS BALANCE SHEET MAY 31, 201X ASSETS LIABILITIES AND OWNER'S EQUITY Cash $ 8 0 0 Liabilities Equipment 7 0 0 Accounts Payable $ 5 0 0 Owner's Equity J. Huck, Capital 1 0 0 0 Total Liabilities and Total Assets $1 5 0 0 Owner's Equity $1 5 0 0 SM-29
SOLUTIONS TO GROUP A PROBLEMS PROBLEM 2A-1 Accounts Affected Category Inc. Dec. Rules T-Account update A. Cash Asset Dr. Cash B. Orwell, Capital 28,000 28,000 B. Orwell, Capital Capital* Cr. B. Delivery Trucks Asset Dr. Delivery Trucks Accounts Payable 12,000 12,000 Accounts Payable Liability Cr. C. Rent Expense Expense Dr. Rent Expense Accounts Payable 1,200 1,200 Accounts Payable Liability Cr. D. Cash Asset Dr. Cash Delivery Fees Earned 2,100 2,100 Delivery Fees Earned Revenue Cr. E. Accounts Receivable Asset Dr. Accounts Receivable Delivery Fees Earned 300 300 Delivery Fees Earned Revenue Cr. F. B. Orwell, Withdrawals Withdrawal* Dr. B. Orwell, Withdrawals Cash Cash Asset Cr. 800 800 * A subdivision of Owner's Equity SM-30
PROBLEM 2A-2 Cash 111 Brian Pud, Withdrawals 312 (A) 40,000 (C) 2,000 150(D) 300(E) 1,100(G) (D) 150 Office Equipment 121 (B) 7,000 Consulting Fees Earned 411 2,000(C) Accounts Payable 211 Advertising Expense 511 (G) 1,100 7,000 (B) 1,000 (F) (E) 300 Brian Pud, Capital 311 40,000 (A) (F) 1,000 Rent Expense 512 SM-31
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PROBLEM 2A-3 (A) 10,000 (C) 4,000 Cash 111 300 (D) 400 (E) 200 (F) 300 (H) 1,000 (I) 14,000 2,200 Bal 11,800 Accounts Payable 211 (D) 300 2,300 (C) 2,000 Bal Cleaning Fees Earned 411 7,000 (B) Accounts Receivable 112 (B) 7,000 4,000 (G) Bal 3,000 Brad Joy, Capital 311 10,000 (A) Rent Expense 511 (F) 200 Office Equipment 121 (C) 2,300 (H) 300 Bal 2,600 Brad Joy, Withdrawals 312 (I) 1,000 Utilities Expense 512 (E) 400 (2) BRAD'S CLEANING SERVICE TRIAL BALANCE OCTOBER 31, 201X Dr. Cr. Cash 11 8 0 0 Accounts Receivable 3 0 0 0 Office Equipment 2 6 0 0 Accounts Payable 2 0 0 0 Brad Joy, Capital 10 0 0 0 Brad Joy, Withdrawals 1 0 0 0 Cleaning Fees Earned 7 0 0 0 Rent Expense 2 0 0 Utilities Expense 4 0 0 Totals 19 0 0 0 19 0 0 0 SM-33
PROBLEM 2A-4 (A) GAIL LUCAS, ATTORNEY AT LAW INCOME STATEMENT FOR MONTH ENDED MAY 31, 201X Revenue: Revenue from Legal Fees $1 6 5 0 Operating Expenses: Utilities Expense $ 3 5 0 Rent Expense 6 5 0 Salaries Expense 1 5 0 Total Operating Expenses 1 1 5 0 Net Income $ 5 0 0 (B) GAIL LUCAS, ATTORNEY AT LAW STATEMENT OF OWNER'S EQUITY FOR MONTH ENDED MAY 31, 201X Gail Lucas, Capital, May 1, 201X $3 6 9 0 Net Income for May $ 5 0 0 Less: Withdrawals for May (6 0 0) Decrease in Capital (1 0 0) Gail Lucas, Capital, May 31, 201X $3 5 9 0 SM-34
GAIL LUCAS, ATTORNEY AT LAW BALANCE SHEET MAY 31, 201X (C) ASSETS LIABILITIES AND OWNER'S EQUITY Cash $5 0 0 0 Liabilities Accounts Receivable 1 1 0 0 Accounts Payable $3 0 0 0 Office Equipment 1 2 5 0 Salaries Payable 7 6 0 Total Liabilities $3 7 6 0 Owner's Equity Gail Lucas, Capital 3 5 9 0 Total Liabilities and Total Assets $7 3 5 0 Owner's Equity $7 3 5 0 SM-35
PROBLEM 2A-5 (1, 2, 3) (A) 29,000 (E) 2,300 (J) 250 Cash 111 600 (C) 650 (D) 600 (F) 1,600 (G) 300 (K) 31,550 3,750 27,800 Accounts Payable 211 12,000 (B) 200 (I) 12,200 Advertising Expense 511 (D) 650 Accounts Receivable 112 (H) 1,700 250 (J) 1,450 A. Annis, Capital 311 29,000 (A) (G) 1,600 Gas Expense 512 Office Equipment 121 (C) 600 A. Annis, Withdrawals 312 (K) 300 Salaries Expense 513 (F) 600 Delivery Trucks 122 (B) 12,000 Delivery Fees Earned 411 2,300 (E) 1,700 (H) 4,000 Telephone Expense 514 (I) 200 SM-36
PROBLEM 2A-5 (CONTINUED) (4) ANNIS'S DELIVERY SERVICE TRIAL BALANCE AUGUST 31, 201X Dr. Cr. Cash 27 8 0 0 Accounts Receivable 1 4 5 0 Office Equipment 6 0 0 Delivery Trucks 12 0 0 0 Accounts Payable 12 2 0 0 A. Annis, Capital 29 0 0 0 A. Annis, Withdrawals 3 0 0 Delivery Fees Earned 4 0 0 0 Advertising Expense 6 5 0 Gas Expense 1 6 0 0 Salaries Expense 6 0 0 Telephone Expense 2 0 0 Totals 45 2 0 0 45 2 0 0 (5A) ANNIS'S DELIVERY SERVICE INCOME STATEMENT FOR MONTH ENDED AUGUST 31, 201X Revenue: Delivery Fees Earned $4 0 0 0 Operating Expenses: Advertising Expense $ 6 5 0 Gas Expense 1 6 0 0 Salaries Expense 6 0 0 Telephone Expense 2 0 0 Total Operating Expenses 3 0 5 0 Net Income $ 9 5 0 SM-37
PROBLEM 2A-5 (CONCLUDED) (5B) ANNIS'S DELIVERY SERVICE STATEMENT OF OWNER'S EQUITY FOR MONTH ENDED AUGUST 31, 201X A. Annis, Capital, August 1, 201X $29 0 0 0 Net Income for August $ 9 5 0 Less: Withdrawals for August (3 0 0) Increase in Capital 6 5 0 A. Annis, Capital, August 31, 201X $29 6 5 0 (5C) ANNIS'S DELIVERY SERVICE BALANCE SHEET AUGUST 31, 201X ASSETS LIABILITIES AND OWNER'S EQUITY Cash $27 8 0 0 Liabilities Accounts Receivable 1 4 5 0 Accounts Payable $12 2 0 0 Office Equipment 6 0 0 Delivery Trucks 12 0 0 0 Owner's Equity A. Annis, Capital 29 6 5 0 Total Liabilities and Total Assets $41 8 5 0 Owner's Equity $41 8 5 0 SM-38
SOLUTIONS TO GROUP B PROBLEMS PROBLEM 2B-1 Accounts Affected Category Inc. Dec. Rules T-Account update A. Cash Asset Dr. Cash B. Om, Capital 50,000 50,000 B. Om, Capital Capital Cr. B. Delivery Trucks Asset Dr. Delivery Trucks Accounts Payable 7,000 7,000 Accounts Payable Liability Cr. C. Rent Expense Expense Dr. Rent Expense Accounts Payable 1,200 1,200 Accounts Payable Liability Cr. D. Cash Asset Dr. Cash Delivery Fees Earned 1,700 1,7 00 Delivery Fees Earned Revenue Cr. E. Accounts Receivable Asset Dr. Accounts Receivable Delivery Fees Earned 150 150 Delivery Fees Earned Revenue Cr. F. B. Om, Withdrawals Withdrawal Dr. B. Om, Withdrawals Cash 100 100 Cash Asset Cr. SM-39
PROBLEM 2B-2 (A) 18,000 (C) 2,400 Cash 111 50 (D) 200 (E) 900 (G) Brian Pud, Withdrawals 312 (D) 50 Office Equipment 121 (B) 4,000 Consulting Fees Earned 411 2,400 (C) Accounts Payable 211 (G) 900 4,000 (B) 1,200 (F) Advertising Expense 511 (E) 200 Brian Pud, Capital 311 18,000 (A) (F) 1,200 Rent Expense 512 SM-40
PROBLEM 2B-3 12,000 (A) 3,500 (G) Cash 111 1,000 (D) 150 (E) 100 (F) 250 (H) 600 (I) Accounts Payable 211 1,000 (D) 1,400 (C) Cleaning Fees Earned 411 14,000 (B) 15,500 2,100 Bal. 13,400 Bal. 400 Accounts Receivable 112 14,000 (B) 3,500 (G) Bal. 10,500 Brad Joy, Capital 311 12,000 (A) 100 (F) Rent Expense 511 Office Equipment 121 1,400 (C) 250 (H) Bal. 1,650 Brad Joy, Withdrawals 312 600 (I) 150 (E) Utility Expense 512 (B) BRAD'S CLEANING SERVICE TRIAL BALANCE OCTOBER 31, 201X Dr. Cr. Cash 13 4 0 0 Accounts Receivable 10 5 0 0 Office Equipment 1 6 5 0 Accounts Payable 4 0 0 Brad Joy, Capital 12 0 0 0 Brad Joy, Withdrawals 6 0 0 Cleaning Fees Earned 14 0 0 0 Rent Expense 1 0 0 Utilities Expense 1 5 0 Totals 26 4 0 0 26 4 0 0 SM-41
PROBLEM 2B-4 (A) GAIL LUCAS, ATTORNEY AT LAW INCOME STATEMENT FOR MONTH ENDED MAY 31, 201X Revenue: Revenue from Legal Fees $1 8 0 0 Operating Expenses: Utilities Expense $ 1 5 0 Rent Expense 5 0 0 Salaries Expense 5 0 0 Total Operating Expenses 1 1 5 0 Net Income $ 6 5 0 (B) GAIL LUCAS, ATTORNEY AT LAW STATEMENT OF OWNER'S EQUITY FOR MONTH ENDED MAY 31, 201X Gail Lucas, Capital, May 1, 201X $1 1 8 0 Net Income for May $ 6 5 0 Less: Withdrawals for May (8 0 0) Decrease in Capital (1 5 0) Gail Lucas, Capital, May 31, 201X $1 0 3 0 SM-42
PROBLEM 2B-4 (CONTINUED) (C) GAIL LUCAS, ATTORNEY AT LAW BALANCE SHEET MAY 31, 201X ASSETS LIABILITIES AND OWNER'S EQUITY Cash $6 0 0 0 Liabilities Accounts Receivable 7 5 0 Accounts Payable $6 2 0 0 Office Equipment 1 2 5 0 Salaries Payable 7 7 0 Total Liabilities $6 9 7 0 Owner's Equity Gail Lucas, Capital 1 0 3 0 Total Liabilities and Total Assets $8 0 0 0 Owner's Equity $8 0 0 0 SM-43
PROBLEM 2B-5 (1, 2, 3) (A) 17,000 (E) 3,500 (J) 400 Cash 111 600 (C) 350 (D) 900 (F) 1,700 (G) 250 (K) Accounts Payable 211 11,000 (B) 600 (I) Bal. 11,600 Advertising Expense 511 (D) 350 20,900 3,800 Bal. 17,100 Accounts Receivable 112 (H) 1,600 400 (J) A. Annis, Capital 311 17,000 (A) (G) 1,700 Gas Expense 512 Bal. 1,200 Office Equipment 121 (C) 600 A. Annis, Withdrawals 312 (K) 250 Salaries Expense 513 (F) 900 Delivery Trucks 122 (B) 11,000 Delivery Fees Earned 411 3,500 (E) 1,600 (H) Bal. 5,100 Telephone Expense 514 (I) 600 SM-44
PROBLEM 2B-5 (CONTINUED) (4) ANNIS'S DELIVERY SERVICE TRIAL BALANCE AUGUST 31, 201X Dr. Cr. Cash 17 1 0 0 Accounts Receivable 1 2 0 0 Office Equipment 6 0 0 Delivery Trucks 11 0 0 0 Accounts Payable 11 6 0 0 A. Annis, Capital 17 0 0 0 A. Annis, Withdrawals 2 5 0 Delivery Fees Earned 5 1 0 0 Advertising Expense 3 5 0 Gas Expense 1 7 0 0 Salaries Expense 9 0 0 Telephone Expense 6 0 0 Totals 33 7 0 0 33 7 0 0 (5A) ANNIS'S DELIVERY SERVICE INCOME STATEMENT FOR MONTH ENDED AUGUST 31, 201X Revenue: Delivery Fees Earned $5 1 0 0 Operating Expenses: Advertising Expense $ 3 5 0 Gas Expense 1 7 0 0 Salaries Expense 9 0 0 Telephone Expense 6 0 0 Total Operating Expenses 3 5 5 0 Net Income $1 5 5 0 SM-45
PROBLEM 2B-5 (CONCLUDED) (5B) ANNIS'S DELIVERY SERVICE STATEMENT OF OWNER'S EQUITY FOR MONTH ENDED AUGUST 31, 201X A. Annis, Capital, May 1, 201X $17 0 0 0 Net Income for May $1 5 5 0 Less: Withdrawals for May (2 5 0) Increase in Capital 1 3 0 0 A. Annis, Capital, May 31, 201X $18 3 0 0 (5C) ASSETS ANNIS'S DELIVERY SERVICE BALANCE SHEET AUGUST 31, 201X LIABILITIES AND OWNER'S EQUITY Cash $17 1 0 0 Liabilities Accounts Receivable 1 2 0 0 Accounts Payable $11 6 0 0 Office Equipment 6 0 0 Delivery Trucks 11 0 0 0 Owner's Equity A. Annis, Capital 18 3 0 0 Total Liabilities and Total Assets $29 9 0 0 Owner's Equity $29 9 0 0 FINANCIAL REPORT PROBLEM SOLUTION 2010 Kellogg s Annual Report $1149-1077 $ 77 Accounts payable increased by $77 million in 2010. SM-46
ON THE JOB--Sanchez Computer Center Solution Cash 1000 3,850 (bal) 900 (P) 150 (L) 200 (M) 1,400 (N) 85 (Q) 50 (R) 4,750 2,865 1,885 Freedman, Withdrawals 3010 100 bal Utilities Expense 5030 85 bal Postage Expense 5070 50 (R) Accounts Receivable 850 (O) Office Equipment 1090 600 (bal) Service Revenue 4000 1,650 (bal) 850 (O) 900 (P) 3,400 Phone Expense 5040 155 (K) Supplies 1030 250 (bal) 200 (S) 450 Accounts Payable 2000 200(M) 85 (Q) 335 (bal) 155(K) 200(S) 285 690 405 Advertising Expense 5010 1,400 (N) Supplies Expense 5050 0 Computer Shop equipment 1080 1,200 (bal) Freedman, Capital 3000 4,500 (bal) Rent Expense 5020 400 (bal) Insurance Expense 5060 150 (L) SM-47
TRIAL BALANCE AUGUST 31, 201X Dr. Cr. Cash 2 8 6 5 00 Accounts Receivable 8 5 0 00 Supplies 4 5 0 00 Computer Shop Equipment 1 2 0 0 00 Office Equipment 6 0 0 00 Accounts Payable 4 0 5 00 Freedman, Capital 4 5 0 0 00 Freedman, Withdrawals 1 0 0 00 Service Revenue 3 4 0 0 00 Advertising Expense 1 4 0 0 00 Rent Expense 4 0 0 00 Utilities Expense 8 5 00 Phone Expense 1 5 5 00 Insurance Expense 1 5 0 00 Postage Expense 5 0 00 Totals 8 3 0 5 00 8 3 0 5 00 SANCHEZ COMPUTER CENTER INCOME STATEMENT FOR THE TWO MONTHS ENDED AUGUST 31, 201X Revenue: Service Revenue $3 4 0 0 00 Operating Expenses: Advertising Expense $1 4 0 0 00 Rent Expense 4 0 0 00 Utilities Expense 8 5 00 Phone Expense 1 5 5 00 Insurance Expense 1 5 0 00 Postage Expense 5 0 00 2 2 4 0 00 Net Income 1 1 6 0 00 SM-48
SANCHEZ COMPUTER CENTER STATEMENT OF OWNER'S EQUITY FOR THE TWO MONTHS ENDED AUGUST 31, 201X Freedman, Capital, July 1, 201X $4 5 0 0 00 Net Income $1 1 6 0 00 Less: Freedman Withdrawals (1 0 0 00) Net Increase Capital 1 0 6 0 00 Freedman, Capital, August 31, 201X $5 5 6 0 00 SANCHEZ COMPUTER CENTER BALANCE SHEET AUGUST 31, 201X ASSETS LIABILITIES AND OWNER'S EQUITY Cash $2 8 6 5 00 Liabilities: Accounts Receivable 8 5 0 00 Accounts Payable $ 4 0 5 00 Supplies 4 5 0 00 Computer Shop Equipment 1 2 0 0 00 Owner's Equity: Office Equipment 6 0 0 00 Freedman, Capital 5 5 6 0 00 Total Liabilities and Total Assets $5 9 6 5 00 Owner's Equity $5 9 6 5 00 SM-49